Tuesday, June 15, 2004

October surprise 

Everyone's heard the conspiracy theory that Bush & Co. could try and pull an orange/red alert to delay or cancel the presidential election if they believe they are likely to lose. Tradesports recently added contracts for betting on alert levels in each month from now until December. Not much trading has occurred on these, so the figures should be viewed as extremely speculative. Nevertheless, the results are fascinating. Below are the most recent closing prices for red and orange alerts in each month.

Month Chance of red alert Chance of orange alert
June 2.0% 14%
July 3.0% 17%
August 2.0% 18%
September 2.0% 19%
October 4.5% 41%
November 4.0% 17%
December 3.0% 18%

For all months other than October and November, this data is remarkably consistent. Red alert is at 2-3% and orange in the range 14-19% every month. Although it is viewed as extremely unlikely, the chance of a red alert in October or November is noticeably higher than in the other months. But the really amazing thing is the chance of an orange alert in October, which at 41% is more than double the chance in any other month!

When you consider the fact that election day is early this year -- November 2nd -- it makes sense that a terror alert is anticipated in October rather than November. According to the trading rules, the day of reckoning is the last day of the month: if you buy a share of orange for the month of October, you are betting that we'll be on Orange alert on October 31st, two days before the election. Likewise for November, it's November 30th, which is four weeks after the election.

There is another, less cynical, but no less alarming interpretation of these figures. Perhaps people are betting that the ugly pattern of 3/11 in Spain will be repeated in this country; Al Qaeda for whatever reason may have an interest in influencing or disrupting U.S. elections, and could be planning a major terror attack for shortly before election day.

I'll be keeping my eye on these trading prices, and will post again if there is any significant change.
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